July 12, 2022

Rwanda’s Debt Balooning Due To High Interest Paid To European, American Companies

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Finance Minister Dr Uzziel Ndagijimana prepares to deliver budget statement to Parliament

Rwanda and other African countries owe three times more debt to Western banks, asset managers and oil traders than to China, and are charged double the interest, according to new research.

The study by UK-based Debt Justice shows that 37 percent of debt repayments by Rwanda are made to private American and European firms.

On the other hand however, Rwanda makes just 9 percent of its debt repayments to China including private lenders.

The country’s total external public debt alone was Rwf 5.93 Trillion ($5.9billion) at the end of June 2021 from Rwf 4.615 trillion ($4.6billion) at the end of June 2020, an increase of 10.3%, which the government says is “explained by a high disbursement from multilateral institutions”.

Rwanda’s total debt to GDP ration is expected to fall to 77.7% of GDP in FY23, from an estimated 78.3% in FY21, but remain significantly above the pre-COVID-19 pandemic figure of 60.7% of GDP in FY19 and compared with 22.7% in FY12.

To give you idea of the magnitude of this debt, the 2022-2023 budget estimates passed last week is about Rwf 4.66 trillion.

The British NGO, using World Bank data, says much of the debt which Rwanda is paying has been accumulating so much because of the high interests to western lenders, contrary to what has been thought as being China.

Western leaders through the G7 have attributed the failure to make progress on debt restructuring to China, but the data shows that this is mistaken said Debt Justice.

Just 12% of African governments’ external debt is owed to Chinese lenders compared to 35% owed to Western private lenders, according to the calculations based on World Bank data.

The figures have been released ahead of the G20 Finance Ministers meeting on 15-16 July in Indonesia.

Campaigners are calling on Western countries, particularly the UK and US, to compel private lenders to take part in the G20’s debt relief scheme, the Common Framework. Three African countries have applied for the Common Framework, none have yet had any debt relief.

President Paul Kagame along with South African and Senegal counterparts will represent the African continent at the Bali G20 Summit.

The Debt Justice study found 12 of the 22 African countries with the highest debts are paying private lenders over 30% of their total external debt payments. They are Rwanda, Cabo Verde, Chad, Egypt, Gabon, Ghana, Malawi, Morocco, Senegal, South Sudan, Tunisia and Zambia.

In contrast, debt payments to Chinese lenders are over 30% in just six of the 22 countries – Angola, Cameroon, Republic of Congo, Djibouti, Ethiopia and Zambia.

“Western leaders blame China for debt crises in Africa, but this is a distraction,” said Tim Jones, Head of Policy at Debt Justice.

“The truth is their own banks, asset managers and oil traders are far more responsible but the G7 are letting them off the hook. China took part in the G20’s debt suspension scheme during the pandemic, private lenders did not. There can be no effective debt solution without the involvement of private lenders. The UK and US should introduce legislation to compel private lenders to take part in debt relief.”

The calculations show that the average interest rate on private sector loans is 5%, compared to 2.7% on loans from Chinese public and private lenders.

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